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ELEKTROBIT CORPORATION (EB) INTERIM REPORT JANUARY - JUNE 2013 - Part 1

Thu 8th August, 2013 6:02am

http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20130808:nHUGddN9


STOCK EXCHANGE RELEASE

Free for publication on August 8, 2013, at 8.00 a.m. (CEST+1)

ELEKTROBIT CORPORATION (EB) INTERIM REPORT JANUARY - JUNE 2013

COMPARABLE NET SALES GREW AND OPERATING RESULT IMPROVED FROM THE PREVIOUS YEAR

*From the beginning of 2013 EB has applied the new IFRS10 and IFRS11 standards. As a result the
proportion of net sales and operating result of e.solutions GmbH, a jointly owned company of EB
and AUDI, to be consolidated into Elektrobit group's consolidated financial statements has
changed. For comparability, all 2012 figures presented for comparison are restated assuming that
the proportionate consolidation method would have been applied already in 2012. 

 

*EB's figures are divided between Continuing and Discontinuing Operations as provided by the IFRS5
standard. In this interim report, Test Tools product business, sold on January 31, 2013, is
classified as Discontinuing Operations.  

SUMMARY APRIL - JUNE 2013

*Net sales of the April - June 2013 from continuing operations grew to EUR 47.9 million (restated
net sales of EUR 41.5 million, 2Q 2012), representing an increase of 15.5 % year-on-year.  
*Operating profit from continuing operations was EUR 0.7 million (restated operating loss of EUR
-0.9 million including non-recurring costs of EUR 0.9 million related to collecting the
receivables from TerreStar companies, 2Q 2012). 
*Net cash flow was EUR -1.5 million (EUR 0.3 million, 2Q 2012). 
*Earnings per share from continuing operations were EUR 0.001 and earnings per share from
continuing and discontinuing operations were EUR 0.001. 
*On June 5, 2013 the Board of Directors of the Company decided on the transfer of stock options
2008A and 2008B to the Finnish book-entry system and to apply for listing on the official list of
NASDAQ OMX Helsinki. Trading with the stock options started on June 17, 2013. 
*A total of 97,500 new shares were subscribed between April 2 and June 20, 2013 by virtue of the
option rights 2008A. The share subscription price, EUR 17,550, has been recorded in the Company's
invested non-restricted equity fund. The corresponding increase in the number of the Company's
shares was entered into the Finnish Trade Register on July 5, 2013 and the trading with the newly
registered shares started on July 8, 2013 in NASDAQ OMX Helsinki Ltd. After the registration of
the new shares, the number of shares in Elektrobit Corporation's totals 129,510,190. 

SUMMARY JANUARY - JUNE 2013

*Net sales of the January - June 2013 from continuing operations grew to EUR 94.1 million
(restated net sales of EUR 84.2 million, 1H 2012), representing an increase of 11.8 %
year-on-year.  
*Operating profit from continuing operations was EUR 1.4 million including non-recurring costs of
approximately EUR 0.8 million resulting from the cost saving measures in the Wireless Business
Segment in the first quarter of 2013 (restated operating loss of EUR -0.4 million including
non-recurring costs of EUR 1.2 million related to collecting the receivables from TerreStar
companies, 1H 2012). 
*Net cash flow was EUR 27.8 million including non-recurring net cash flow of about EUR 28 million
resulting from the sale of the Test Tools product business (EUR -3.5 million, 1H 2012). 
*Earnings per share from continuing operations were EUR 0.006 and earnings per share from
continuing and discontinuing operations were EUR 0.187. 
 
 Group, continuing operations (MEUR)                  2Q 13       2Q 12    1H 13  1H 12 restated          2012 
                                                             
 restated                             
 restated 
 NET SALES                                             47.9        41.5     94.1            84.2         173.9 
 OPERATING PROFIT / LOSS                                0.7        -0.9      1.4            -0.4           1.1 
 Operating profit /loss without non-recurring items     0.7         0.0      2.2             0.8           5.1 
 EBITDA                                                 2.9         0.8      5.8             2.9           8.1 
 CASH AND OTHER LIQUID ASSETS                          42.1         5.8     42.1             5.8          14.3 
 EQUITY RATIO (%)                                      64.0        58.1     64.0            58.1          55.0 
 EARNINGS PER SHARE (EUR)                             0.001      -0.005    0.006          -0.004         0.008 
 
 
 Automotive Business Segment (MEUR)   2Q 13  2Q 12 restated    1H 13  1H 12 restated          2012 
                                                                                        
 restated 
 NET SALES                             32.6            24.9     63.0            51.3         110.6 
 OPERATING PROFIT / LOSS                0.1            -0.0      1.2             0.7           3.3 
 EBITDA                                 1.6             1.0      4.1             2.6           7.3 
 
 
 Wireless Business Segment,                           2Q 13  2Q 12    1H 13  1H 12    2012 
 
 continuing operations (MEUR)                                                            
 NET SALES                                             15.4   16.6     31.2   33.0    63.5 
 OPERATING PROFIT / LOSS                                0.6   -0.9      0.1   -1.0    -2.2 
 Operating profit /loss without non-recurring items     0.6    0.0      1.0    0.2     1.8 
 EBITDA                                                 1.2   -0.2      1.7    0.4     0.7 
 
 
EB'S CEO JUKKA HARJU:

"During the first half of 2013 EB's business developed in line with our plans. The net sales grew
by 11.8 per cent year-on-year due to the continued strong growth of the Automotive Business
Segment. Net sales of the Wireless Business Segment decreased slightly year-on-year. EB's
operating result improved from previous year and was EUR 1.4 million positive. The operating
result was negatively affected by the non-recurring costs of approximately EUR 0.8 million
resulting from the cost saving measures of the Wireless Business Segment. Operating result of the
both Business Segments improved year-on-year.

EB's financial position and financing strengthened significantly in the beginning of the year as
EB sold its Test Tools product business for EUR 31.0 million at the end of January 2013.

Although the demand outlook in Wireless Business Segment is temporarily weakened for the rest of
the year, the outlook for the growth in net sales in 2013 is still good due to the continued
strong growth of Automotive Business Segment. This gives a good opportunity to reach the same
operating profit level as last year without non-recurring items."

OUTLOOK FOR 2013

From the beginning of 2013 EB has started to apply the new IFRS10 and IFRS11 standards concerning
consolidation, and consolidates e.solutions GmbH, the jointly owned company with AUDI, by applying
the proportionate consolidation method. Previously e.solutions GmbH has been included in
Elektrobit group's consolidated financial statements as subsidiary. As a result of the change in
the method of consolidation, the proportion of net sales and operating result of e.solutions GmbH
to be consolidated into Elektrobit group's consolidated financial statements will decrease. The
change does not affect the net profit of the Company. The change in the method of consolidation as
presented above has been taken into account in the 2013 outlook for net sales and operating result
presented below. More information about this has been presented in this interim report in the
section "Change in the consolidation of the jointly owned company of EB and AUDI as of January 1,
2013".

Carmakers continue to invest in software for new car models and the market for automotive software
products and services is estimated to continue growing. However the growth rate of the global
automotive industry is estimated to be less than in the previous year due to the financial
uncertainties in Europe. Despite these uncertainties, many carmakers have further continued good
financial performance and slowing down of the markets affects different car makers in different
ways. The demand for EB's automotive software solutions is estimated to remain good. In the
Automotive Business Segment the operating profit in 2013 is expected to accumulate mainly during
the second half of the year (EUR 1.2 million, 1H 2013) due to higher product license sales during
the latter half of the year and other seasonality factors.

In the Wireless Business Segment the growth in demand will be driven especially by the increasing
use of the LTE technology that increases the performance of mobile networks, and the authorities'
needs for new communication solutions that use commercial technologies of smart phones and mobile
networks, as well as the growing need of companies to provide wireless connectivity of their
devices, targeted to consumers and for professional use, to broader solutions. General cost saving
measures of the public sector reflects the demand negatively in the public authority markets in
Europe. In the Wireless Business Segment the demand outlook for the rest of the year has weakened
due to the decreased order volume from a large customer of EB and due to the delay in some special
terminal projects. Due to the weakened demand outlook, the operating result in the second half of
2013 is expected to be at the same level or less than in the first half of 2013 (EUR 0.1 million,
1H 2013). Additionally, the operating result is affected by seasonality factors and by cost
savings materializing during the last quarter of 2013 as a result from planned temporary layoffs.

EB expects for the year 2013 that net sales will grow and operating result will be at the same
level as it was in 2012 without non-recurring items (restated net sales of EUR 173.9 million, and
restated operating profit without non-recurring items of EUR 5.1 million, in 2012). 

More specific market outlook is presented under the "Business Segments' development during April -
June 2013 and Market Outlook" section. The Wireless Business Segment's weakened demand outlook for
the rest of the year and the aimed cost savings resulting from the temporary layoffs have been
taken into account in the outlook for 2013. 

The non-recurring net profit of about EUR 23 million, resulted from the sale of the Test Tools
product business, has no impact on the operating result of 2013 and therefore has no impact on the
operating result guidance. All profits and costs related to the mentioned business are presented
in the group's income statement, below operating profit under "result for the period from
discontinuing operations". 

The profit outlook for the year 2013 does not include possible non-recurring income or costs
related to the reorganization cases of TerreStar Networks Inc. More information about the
reorganization cases of TerreStar Networks and the amount of the receivables and collecting the
receivables as well as other uncertainties regarding the outlook is presented under "Risks and
Uncertainties" section.

INVITATION TO A PRESS CONFERENCE

EB will hold a press conference on the Interim Report January-June 2013 for media, analysts and
institutional investors in Finland, Oulu, Tutkijantie 8, on Thursday, August 8, 2013, at 11.00
a.m. (CEST+1). The conference will also be held as a conference call and the presentation will be
shown simultaneously in the Internet through WebEx. The conference will be held in English. For
more information please go to www.elektrobit.com/investors http://www.elektrobit.com/investors . 

Elektrobit Corporation (EB)

EB creates advanced technology and turns it into enriching end-user experiences. EB is specialized
in demanding embedded software and hardware solutions for wireless and automotive industries. The
net sales from continuing operations in 2012 totaled EUR 185.4 million. Restated net sales from
continuing operations in 2012 totaled EUR 173.9 million. Elektrobit Corporation is listed on
NASDAQ OMX Helsinki. www.elektrobit.com http://www.elektrobit.com 

ELEKTROBIT CORPORATION (EB) INTERIM REPORT JANUARY-JUNE 2013

*From the beginning of 2013 EB has applied the new IFRS10 and IFRS11 standards. As a result the
proportion of net sales and operating result of e.solutions GmbH, a jointly owned company of EB
and AUDI, to be consolidated into Elektrobit group's consolidated financial statements has
changed. For comparability, all 2012 figures presented for comparison are restated assuming that
the proportionate consolidation method according to the above mentioned standards would have been
applied already in 2012. 

 

*EB's figures are divided between Continuing and Discontinuing Operations as provided by the IFRS5
standard. In this interim report, Test Tools product business, sold on January 31, 2013, is
classified as Discontinuing Operations.  

FINANCIAL PERFORMANCE DURING JANUARY-JUNE 2013, CONTINUING OPERATIONS

EB's net sales from continuing operations during January-June 2013 grew by 11.8 per cent
year-on-year to EUR 94.1 million (restated net sales of EUR 84.2 million, 1H 2012). Operating
profit from continuing operations was EUR 1.4 million including the non-recurring cost of
approximately EUR 0.8 million resulting from the cost saving measures in the Wireless Business
Segment during the first quarter of 2013 (restated operating loss of EUR -0.4 million, including
EUR 1.2 million non-recurring costs related to collecting the receivables from TerreStar
Companies, 1H 2012). Operating profit from continuing operations without these non-recurring costs
was EUR 2.2 million (restated operating profit of EUR 0.8 million, 1H 2012). 

Net sales of the Automotive Business Segment grew in January-June 2013 to EUR 63.0 million
(restated net sales of EUR 51.3 million, 1H 2012), representing 22.9 per cent growth year-on-year.
A significant proportion of the growth in the net sales came from the rapid growth of e.solutions
GmbH, the jointly owned company with AUDI.  The operating profit was EUR 1.2 million (restated
operating profit of EUR 0.7 million, 1H 2012). At the beginning of 2013 EB was selected as the
supplier for several long-term product development and product customization projects for leading
car makers. A pricing model, where a part of the product development fee is moved to license fee
based on the actual delivery volumes of new cars, was taken into use in the largest projects. This
pricing model is common in the automotive industry.

The Wireless Business Segment's net sales from continuing operations in January-June 2013
decreased 5.5 per cent year-on-year, to EUR 31.2 million (EUR 33.0 million, 1H 2012). The decrease
in the net sales compared to previous year was due to decline in the product development services
for the authority markets. The operating profit from continuing operations of the Wireless
Business Segment in January-June 2013 was EUR 0.1 million including the non-recurring cost of
approximately EUR 0.8 million resulting from the cost saving measures in the first quarter of 2013
(operating loss of EUR -1.0 million including EUR 1.2 million non-recurring costs related to
collecting the receivables from TerreStar Companies, 1H 2012). Wireless Business Segment's
operating profit from continuing operations without the above mentioned non-recurring costs was
EUR 1.0 million (EUR 0.2 million, 1H 2012). 
 
 CONSOLIDATED INCOME STATEMENT (MEUR)                         1-6 2013    1-6 2012 
                                                                        
 restated 
                                                              6 months    6 months 
 CONTINUING OPERATIONS                                                             
 Net sales                                                        94.1        84.2 
 Operating profit / loss                                           1.4        -0.4 
 Financial income and expenses                                    -0.6         0.1 
 Result before tax                                                 0.8        -0.3 
 RESULT FOR THE PERIOD FROM CONTINUING OPERATIONS                  0.8        -0.5 
 RESULT FOR THE PERIOD FROM DISCONTINUING OPERATIONS              23.6         0.4 
 RESULT FOR THE PERIOD                                            24.4        -0.1 
 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD                        24.6        -0.1 
                                                                                   
 Result for the period attributable to:                                            
 Equity holders of the parent                                     24.4        -0.1 
 Non-controlling interests                                         0.0         0.0 
 Total comprehensive income for the period attributable to:                        
 Equity holder of the parent                                      24.6        -0.1 
 Non-controlling interests                                         0.0         0.0 
                                                                                   
 Earnings per share from continuing operations, EUR              0.006      -0.004 
 
 
*Cash flow from operating activities was EUR 5.4 million (EUR -2.4 million, 1H 2012)  
*Net cash flow was EUR 27.8 million including non-recurring net cash flow of about EUR 28 million
resulting from the sale of the Test Tools product business (EUR -3.5 million, 1H 2012). 
*Equity ratio was 64.0% (58.1%, 1H 2012).  
*Net gearing was -28.7% (13.1%, 1H 2012). 

QUARTERLY FIGURES, CONTINUING OPERATIONS

Elektrobit Group's net sales and operating result, Continuing Operations, MEUR: 
 
                                                       2Q 13  1Q 13       4Q 12       3Q 12       2Q 12 
                                                                     
 restated  
 restated  
 restated 
 Net sales                                              47.9   46.2        48.2        41.5        41.5 
 Operating profit (loss)                                 0.7    0.7        -0.5         2.0        -0.9 
 Operating profit (loss) without non-recurring costs     0.7    1.5         3.6         0.7         0.0 
 Result before taxes                                     0.2    0.6        -0.9         1.8        -0.5 
 Result for the period                                   0.2    0.6        -0.1         1.7        -0.6 
 
 
Wireless Business Segment, net sales and operating result without non-recurring items, Continuing
Operations, MEUR 
 
                                                       2Q 13  1Q 13  4Q 12  3Q 12  2Q 12 
 Net sales                                              15.4   15.8   16.4   14.1   16.6 
 Operating profit (loss)                                 0.6   -0.4   -3.2    2.0   -0.9 
 Operating profit (loss) without non-recurring items     0.6    0.4    0.9    0.8    0.0 
 
 
Non-recurring items are exceptional gains and costs that are not related to normal business
operations and occur only seldom. These items include capital gains or losses, significant changes
in asset values such as write-downs or reversals of write-downs, significant restructuring costs,
or other items that the management considers to be non-recurring. When evaluating a non-recurring
item, the euro translation value of the item is considered, and in case of a change in an asset
value, it is measured against the total value of the asset.

Non-recurring items, mentioned in the tables above are as follows: 

*costs related to collecting the receivables from TerreStar Companies and income resulting from
the settlement payment in the reorganization cases of TerreStar Corporation during 2012,  
*non-recurring items of approximately EUR 4 million in total, booked in the fourth quarter of
2012, as result of the financial challenges faced by a US based customer of EB's subsidiary,
Elektrobit Inc., and 
*non-recurring cost of approximately EUR 0.8 million resulting from the cost saving measures in
the Wireless Business Segment in the first quarter of 2013. 

These non-recurring items have been reported as part of Wireless Business Segment's operating
result.

The distribution of net sales by Business Segments, Continuing Operations, MEUR: 
 
                     2Q 13  1Q 13       4Q 12       3Q 12       2Q 12 
                                   
 restated  
 restated  
 restated 
 Automotive           32.6   30.5        31.9        27.4        24.9 
 Wireless             15.4   15.8        16.4        14.1        16.6 
 Corporation total    47.9   46.2        48.2        41.5        41.5 
 
 
The distribution of net sales by market areas, Continuing Operations, MEUR and %: 
 
               2Q 13     1Q 13       4Q 12       3Q 12  2Q 12 restated 
                                
 restated  
 restated                 
 Asia            1.7       1.9         2.4         3.1             1.1 
             
 3.6 %   
 4.2 %     
 4.9 %     
 7.6 %         
 2.8 % 
 Americas        6.4       6.2         6.4         7.6             7.5 
            
 13.4 %  
 13.3 %    
 13.2 %    
 18.3 %        
 18.1 % 
 Europe         39.7      38.1        39.5        30.7            32.8 
            
 83.0 %  
 82.5 %    
 81.9 %    
 74.1 %        
 79.2 % 
 
 
Net sales and operating profit development by Business Segments and other businesses, Continuing
Operations, MEUR: 
 
                                     2Q 13   1Q 13       4Q 12       3Q 12       2Q 12 
                                                    
 restated  
 restated  
 restated 
 Automotive                           32.5    30.5        31.8        27.4        24.9 
 
 Net sales to external customers   
 0.1   
 0.0       
 0.0       
 0.0       
 0.0 
 
 Net sales to other segments       
 0.1   
 1.1       
 2.6      
 -0.0      
 -0.0 
 
 Operating profit (loss)                                                             
 Wireless                             15.4    15.8        16.4        14.1        16.6 
 
 Net sales to external customers   
 0.0   
 0.0       
 0.0       
 0.0       
 0.0 
 
 Net sales to other segments       
 0.6  
 -0.4      
 -3.2       
 2.0      
 -0.9 
 
 Operating profit (loss)                                                             
 Other businesses                      0.0     0.0         0.0         0.0         0.0 
 
 Net sales to external customers   
 0.1  
 -0.0       
 0.1      
 -0.0      
 -0.0 
 
 Operating profit (loss)                                                             
 Total                                47.9    46.2        48.2        41.5        41.5 
 
 Net sales                         
 0.7   
 0.7      
 -0.5       
 2.0      
 -0.9 
 
 Operating profit (loss)                                                             
 
 
SIGNIFICANT EVENTS DURING THE REPORTING PERIOD

On January 10, 2013 EB announced to lower its profit guidance for 2012 due to the weaker than
expected fourth quarter. The reason for the weakening of the fourth quarter was the non-recurring
items of approximately EUR 4 million in total, booked as result of the financial challenges faced
by a US based customer of EB's subsidiary, Elektrobit Inc. According to the lowered guidance, EB
expected the operating result of the fourth quarter of 2012 to be approximately between EUR -0.4
million and EUR 1.1 million (EUR 3.5 million, 4Q 2011), the operating result of the second half of
2012 to be approximately between EUR 1.7 million and EUR 3.2 million (EUR 0.4 million, 2H 2011),
and the operating result of the whole year 2012 to be approximately between EUR 2.2 million and
EUR 3.7 million (operating loss of EUR -4.0 million in 2011). The expected operating results
presented above included non-recurring items that caused the lowering of the fourth quarter profit
guidance, as well as non-recurring income and costs related to the reorganization processes of
TerreStar companies, booked earlier in 2012. The outlook for the net sales the Company expected to
develop as earlier estimated and thus EB expected that the net sales of the fourth quarter of 2012
will be approximately EUR 57 million (EUR 49.0 million, 4Q 2011), the net sales of the second half
of 2012 was expected to be approximately EUR 104 million (EUR 86.1 million, 2H 2011) and the net
sales of the whole year 2012 was expected be approximately EUR 200 million (EUR 162.2 million in
2011).

On January 28, 2013 EB announced to have signed an agreement with Anite plc, under the terms of
which EB agreed to sell its Test Tools product business to Anite ("the Transaction"). The
Transaction comprised the sale of the shares of EB's subsidiary Elektrobit System Test Ltd., a
company based in Oulu, Finland, and certain related other assets in the USA and China. EB's Test
Tools product business provided radio channel emulation tools and testing solutions for the
development of the wireless technologies and was part of EB's Wireless Business Segment employing
a total of 54 persons in Finland, USA and China. Closing of the Transaction was agreed to take
place on January 31, 2013, subject to completion of customary closing events, such as payment of
the cash consideration. According to the agreement, the cash consideration payable to EB by Anite
as a result of the Transaction was EUR 31.0 million on a cash and debt free basis, subject to a
post completion adjustment based upon the level of net working capital and cash and debt in the
Test Tools product business on January 31, 2013. The net assets of the Test Tools product business
in January 31, 2013 was expected to be approximately EUR 5 million.

In addition, on January 28, 2013 EB gave advance information on its fourth quarter and full year
2012 net sales and operating results. EB announced also to report its 2012 financial results, as
provided by the IFRS5 standard, divided between Continuing and Discontinuing Operations, and that
the Test Tools product business is classified as Discontinuing Operations in the 2012 financial
statements.  

On January 31, 2013 EB announced that the sale of the Test Tools product business to Anite plc was
completed. The cash consideration paid by Anite to EB as a result of the Transaction was EUR 31.0
million on a cash and debt free basis, subject to a post completion adjustment based upon the
level of net working capital and cash and debt in the Test Tools product business on January 31,
2013. The closing of the Transaction resulted in a non-recurring net profit of about EUR 23 and
non-recurring net cash flow of about EUR 28 million in the first quarter of 2013.

On February 19, 2013, simultaneously with the announcement of the Financial Statement Bulletin
2012, EB announced it will apply the new IFRS10 and IFRS11 standards from the beginning of 2013
and therefore will consolidate e.solutions GmbH, the jointly owned company with Audi Electronics
Venture GmbH (AEV), applying the proportionate consolidation method. As a result of the change in
the method of consolidation, the proportion of net sales and operating result of e.solutions GmbH
to be consolidated into Elektrobit group's financial statements will decrease from the previous
100% to 51%. According to the rules of the proportionate consolidation method, the consolidated
statement will also include 49% of the net sales from other Elektrobit group companies to
e.solutions GmbH. 

On February 19, 2013, EB announced also that it will start measures to improve its cost structure
in the Wireless Business Segment. The measures were completed on April 4, 2013 and the Company
estimates to reach the targeted approximately EUR 2 million annual cost savings in its Wireless
Business Segment, fully effective from the second half of 2013 on. The measures resulted
non-recurring costs of approximately EUR 0.8 million that affect negatively the Company's
operating result of the first quarter of 2013. The underlying reasons for the measures to improve
the cost structure were the changed business requirements. As part of these measures, EB reduced
its personnel in the Wireless Business Segment globally by altogether 32 persons, 8 of them in
Finland. In addition, EB also concentrated some of its Wireless Business Segment operations to
Finland and moved the centre of its US operations from west coast to east coast, where many of the
public sector customers are located. 

On June 5, 2013 the Board of Directors of Elektrobit Corporation decided on the transfer of stock
options 2008A and 2008B to the Finnish book-entry system and to apply for listing of 1.400.000
stock options 2008A and of 1.400.000 stock options 2008B on the official list of NASDAQ OMX
Helsinki. The trading with the stock options started on June 17, 2013. The share subscription
period for stock options 2008A will end on March 31, 2014. The share subscription period for stock
options 2008B will end on March 31, 2015.

On July 5, 2013 EB told that a total of 97,500 new shares in Elektrobit Corporation were
subscribed between April 2 and June 20, 2013 by virtue of the option rights 2008A. The share
subscription price, EUR 17,550, was recorded in the Company's invested non-restricted equity fund.
The corresponding increase in the number of the Company's shares was entered into the Finnish
Trade Register on July 5, 2013. Trading with the newly registered shares started on July 8, 2013
as an additional lot of Elektrobit Corporation's shares in NASDAQ OMX Helsinki Ltd. After the
registration of the new shares, the number of shares in Elektrobit Corporation's totals
129,510,190. More information and the terms and conditions of stock options 2008 are available in
www.elektrobit.com/investors in the Company's web pages.

BUSINESS SEGMENTS' DEVELOPMENT DURING APRIL-JUNE 2013 AND MARKET OUTLOOK

EB's reporting is based on two segments which are the Automotive and Wireless Business Segments. 

AUTOMOTIVE 

In Automotive Business Segment EB offers software products and R&D services for carmakers, car
electronics suppliers and other suppliers to the automotive industry. The offering includes in-car
infotainment solutions, such as navigation and human machine interfaces (HMI), as well as software
for electronic control units (ECU) and driver assistance (DA). By combining its software products
and R&D services, EB is creating unique, customized solutions for the automotive industry. EB's
software products are: EB street director navigation software, EB GUIDE HMI development and speech
dialogue platform, EB tresos product line of software components used in ECUs and tools for their
configuration, and EB Assist, an extensive product line with tooling and a software development
kit for driver assistance solutions. These software products generate license fees, often combined
with supply of R&D services for customized solutions. 

EB and Audi's subsidiary, Audi Electronics Venture GmbH (AEV), have the joint venture e.solutions
GmbH that is currently developing infotainment software and provides systems engineering and
systems integration services for Volkswagen Group car models. EB also delivers products and R&D
services to the joint venture. EB owns 51% of e.solutions GmbH and AEV 49%. 

EB's net sales in Automotive Business Segment continued its strong growth during the second
quarter of 2013 and amounted to EUR 32.6 million (restated net sales of EUR 24.9 million, 2Q
2012), representing a growth of 30.6 % year-on-year. A significant proportion of the growth in the
net sales came from the rapid growth of e.solutions GmbH, a jointly owned company with AUDI. The
operating profit was EUR 0.1 million (restated operating loss of EUR -0.0 million, 2Q 2012). 

In April, EB announced to have opened a new office in Brasov, Romania for automotive software
development. The new location will allow the company to expand its existing automotive software
development teams in Romania. EB plans to grow the local team to more than 100 software developers
over time. The Brasov office will focus on automotive software product development and testing.

In June EB and Daimler announced to have strengthened their long-term successful partnership for
developing Daimler's embedded driver assistance software. Through this partnership, a new
collaboration model is being introduced, where EB is taking the role of direct software supplier
for Driver Assistance to Daimler. By separating hardware and software development, EB and Daimler
are able to manage the growing complexity of software in the Driver Assistance domain. It also
enables both parties to focus on their core competencies.

Automotive Market Outlook 

The demand for EB's products and services is estimated to develop positively year-on-year during
2013 in Automotive Business Segment. Recently the uncertainty in the market outlook for the global
car industry has continued especially in Europe where the number of cars sold is expected to
decrease in 2013 from 2012, while in USA and China and other developing countries the market is
expected to grow. Despite these uncertainties, many carmakers have further continued good
financial performance and slowing down of the markets affects different car makers in different
ways. The slowing down of the markets affects decreasingly also to the carmakers' R&D investments.
However, carmakers will continue to invest in automotive software for new car models and the
market for automotive software products and services is estimated to continue growing during 2013,
but at a slower pace than in the years before. The demand for EB's software solutions is estimated
to continue as good in 2013.

In the labor market, particularly in Germany, competition of talented engineers still is tight and
is slightly slowing down the growth of personnel and thereby impacting the growth of the services
business. e.solutions GmbH, the jointly owned company with AUDI, succeeded to grow its personnel
significantly during the end of 2012 after announcing the decision to expand its business, and the
outlook for the joint venture's growth in 2013 is good.

A Roland Berger study estimates the share of electronics in cars will grow from 23 per cent in
2010 to 33 per cent until 2020. The move to greater electronic content in cars has been underway
for several years and has been responsible for such major innovations as security systems,
anti-lock brakes, engine control units, driver assistance, and infotainment. These features have
become so enormously popular that they are now widely available, in both low-end and high-end
vehicles, demonstrating that consumers are willing to pay for technology that enhances their
driving experience. Further market growth is expected e.g. in the areas of Driver Assistance and
Connected Car solutions. Connectivity with the cloud can provide several enhancements to car
functions such as navigation, for example real-time traffic information.

The increasingly sophisticated and networked features and growing performance foster the
complexity of automotive electronics. At the same time consumers expect the same richness of
features and user experience they know from the internet and mobile devices also within the car.
Carmakers have been steadily integrating more electronic components into vehicles. These
development trends are driving the industry towards gradual separation of software and hardware in
electronics solutions in order to manage the architectural software layer appropriately and to aim
for efficiency in innovation and implementation. The use of standard software solutions is
expected to increase in the automotive industry. This enables faster innovation, improves quality
and development efficiency and reduces complexity related to deployment of software.

The fundamental industry migration and consequent growth of the automotive software market will
continue. Cost pressures of the automotive industry are expected to accelerate the need for
productized and efficient software solutions EB is offering. The estimated annual automotive
software market growth rate from 2012 until 2020 is expected to exceed the growth rate of
passenger car production volume that is estimated to be 4.5% CAGR (LMC Automotive's Q3 2013
Forecast).

EB's net sales from the automotive industry is currently primarily driven by the development of
software and software platforms for new cars and by sales of software licenses needed in product
development. Hence the dependency of EB's net sales on car production volumes is currently
limited. The direct dependency on production volumes will increase over the forthcoming years as a
result of the EB's transition towards software product business models. The dependency on EB's net
sales on car delivery volumes is also increased by EB's customers tending to allocate a part of
the software development costs to be paid in license fees based on the actual car delivery
volumes. This pricing model is common in the automotive industry. It can offer EB also an
opportunity for higher cumulative income, in case the amount of the new cars sold would be high.

WIRELESS 

In the Wireless Business Segment EB offers products and product platforms for defence and public
safety markets as well as for industrial use. Further EB offers product development services and
customized solutions for wireless communications markets and for companies needing wireless
connectivity for their products. EB's products in the Wireless Business Segment are the EB
Tactical Wireless IP Network for tactical communications, EB Tough VoIP for tactical IP-based
communication, EB Wideband COMINT Sensor for signals intelligence. The product platforms are EB
Counter RCIED Platform for electronic warfare, the Android-based EB Specialized Device Platform
and EB LTE Connectivity Module for specialized markets. For the latest wireless technologies and
applications EB offers a broad range of R&D services such as consulting, integration, software and
hardware development.

Net sales of continuing operations of the Wireless Business Segment during the second quarter of
2013 decreased by 7.0 % year-on-year to EUR 15.4 million (EUR 16.6 million, 2Q 2012). Operating
profit from continuing operations was EUR 0.6 million (operating loss of EUR -0.9 million
including non-recurring costs of EUR 0.9 million from collecting the receivables from TerreStar
Companies, 2Q 2012). The decrease in the net sales compared to previous year was due to decline in
the product development services for the authority markets. Net sales to mobile communication
markets and other companies increased from previous year.

During the second quarter of 2013 EB continued its R&D investments in products and product
platforms targeted for the defense and public safety markets and related international sales and
marketing efforts. 

In April EB signed a contract with the Finnish Defence Forces for deliveries of the EB Tactical
Wireless IP Network communication system. The product delivery contains tactical routers and radio
head units for the land force's communication needs. This contract is a continuation to the EB's
Tactical Wireless IP Network development and pilot delivery contract signed in September 2011. The
value of the purchase is EUR 7.0 million (excl. VAT). The deliveries are to be finalized by the
end of March 2014. 

In April EB concluded measures to improve its cost structure in Wireless Business Segment, started
on February 19, 2013, and estimates to reach the targeted approximately EUR 2 million annual cost
savings in its Wireless Business Segment, fully effective from the second half of 2013 on. The
measures resulted non-recurring costs of approximately EUR 0.8 million that affected negatively
the Company's operating result of the first quarter of 2013. The underlying reasons for the
measures to improve the cost structure were the changed business requirements. 

Wireless Market Outlook

In the Wireless Business Segment, EB's customers operate in various industries, each of them
having own industry specific factors driving the demand. A common factor creating demand among the
whole customer base is the introduction of new technologies. The implementation of LTE (Long Term
Evolution) technology continues to be the most important technological change driving the demand,
and in 2013 EB's business driven by LTE is expected to stay at the same level as in 2012.
Mastering of multi-radio technologies and end-to-end system architectures covering both terminals
and networks has gained importance in the complex wireless technology industry. 

EB currently aims at bringing its products to the global defense market with the target to
gradually increase the product sales in the next few years. The development of defense budgets
varies geographically with budget cuts in the western markets and increases in Asia and South
America. In Tactical Communications, the growing importance of situational awareness shared by
military forces creates needs for new broadband networks, such as EB's IP (Internet Protocol)
based tactical communications solutions. The defense market is characterized by long sales cycles
driven by purchasing programs of national governments, and the purchases of the selected products
take place over several years. In 2013, the public defense budget cuts have negative affect on the
demand for product development services in Europe.

For the markets of national security and other authorities, EB offers specialized customized
solutions based on its product platforms. The trend of adopting new commercial technologies, such
as LTE and smart phone related operating systems and applications, is expected to continue in
special verticals such as public safety. The specific LTE frequency band allocations for
authorities create demand for customized LTE devices. These markets have special requirements and
the volumes are lower than in the mass-markets. The US public safety market is progressing,
although slowly, towards a nationwide LTE network.  

In the mobile infrastructure market the use of LTE technology is expected to continue strong. For
the mobile infrastructure market this creates the need for services for LTE base station design.
There is a wide range of frequencies allocated for LTE globally thus creating a need to develop
multiple products to cover the market, and creating a need for R&D services for design of product
variants. Need for R&D services for connected devices for various end user needs emerged during
2012 and this trend is expected to continue in 2013.

RESEARCH AND DEVELOPMENT

EB continued its investments in R&D in the automotive software products and tools in Automotive
Business Segment, and in products and product platforms for the defence and public safety markets
in Wireless Business Segment.

The total R&D investments for continuing operations during January-June 2013 were EUR 10.3 million
(restated EUR 10.9 million, 1H 2012), equaling 11.0% of the net sales (restated 13.0 %, 1H 2012).
The share of R&D investments in Automotive Business Segment was EUR 8.1 million (restated EUR 8.9
million, 1H 2012) and in Wireless Business Segment in continuing operations EUR 2.2 million (EUR
2.0 million, continuing operations, 1H 2012).

EUR 0.0 million of R&D investments of the reporting period were capitalized (EUR 2.8 million, 1H
2012). The amount of capitalized R&D investments at the end of June 2013 was EUR 12.7 million (EUR
13.9 million, 1H 2012). A significant part of these capitalizations is related to customer
agreements of Automotive Business Segment, where future license fees, based on the actual car
delivery volumes, are expected to accumulate in the coming years. Depreciations of R&D investments
were EUR 0.8 million during the reporting period (EUR 0.4 million, 1H 2012).

OUTLOOK FOR 2013

From the beginning of 2013 EB has started to apply the new IFRS10 and IFRS11 standards concerning
consolidation, and consolidates e.solutions GmbH, the jointly owned company with AUDI, by applying
the proportionate consolidation method. Previously e.solutions GmbH has been included in
Elektrobit group's consolidated financial statements as subsidiary. As a result of the change in
the method of consolidation, the proportion of net sales and operating result of e.solutions GmbH
to be consolidated into Elektrobit group's consolidated financial statements will decrease. The
change does not affect the net profit of the Company. The change in the method of consolidation as
presented above has been taken into account in the 2013 outlook for net sales and operating result
presented below. More information about this has been presented in this interim report in the
section "Change in the consolidation of the jointly owned company of EB and AUDI as of January 1,
2013".

Carmakers continue to invest in software for new car models and the market for automotive software
products and services is estimated to continue growing. However the growth rate of the global
automotive industry is estimated to be less than in the previous year due to the financial
uncertainties in Europe. Despite these uncertainties, many carmakers have further continued good
financial performance and slowing down of the markets affects different car makers in different
ways. The demand for EB's automotive software solutions is estimated to remain good. In the
Automotive Business Segment the operating profit in 2013 is expected to accumulate mainly during
the second half of the year (EUR 1.2 million, 1H 2013) due to higher product license sales during
the latter half of the year and other seasonality factors.

In the Wireless Business Segment the growth in demand will be driven especially by the increasing
use of the LTE technology that increases the performance of mobile networks, and the authorities'
needs for new communication solutions that use commercial technologies of smart phones and mobile
networks, as well as the growing need of companies to provide wireless connectivity of their
devices, targeted to consumers and for professional use, to broader solutions. General cost saving
measures of the public sector reflects the demand negatively in the public authority markets in
Europe. In the Wireless Business Segment the demand outlook for the rest of the year has weakened
due to the decreased order volume from a large customer of EB and due to the delay in some special
terminal projects. Due to the weakened demand outlook, the operating result in the second half of
2013 is expected to be at the same level or less than in the first half of 2013 (EUR 0.1 million,
1H 2013). Additionally, the operating result is affected by seasonality factors and by cost
savings materializing during the last quarter of 2013 as a result from planned temporary layoffs.

EB expects for the year 2013 that net sales will grow and operating result will be at the same
level as it was in 2012 without non-recurring items (restated net sales of EUR 173.9 million, and
restated operating profit without non-recurring items of EUR 5.1 million, in 2012). 

More specific market outlook is presented under the "Business Segments' development during April -
June 2013 and Market Outlook" section. The Wireless Business Segment's weakened demand outlook for
the rest of the year and the aimed cost savings resulting from the temporary layoffs have been
taken into account in the outlook for 2013. 

The non-recurring net profit of about EUR 23 million, resulted from the sale of the Test Tools
product business, has no impact on the operating result of 2013 and therefore has no impact on the
operating result guidance. All profits and costs related to the mentioned business are presented
in the group's income statement, below operating profit under "result for the period from
discontinuing operations". 

The profit outlook for the year 2013 does not include possible non-recurring income or costs
related to the reorganization cases of TerreStar Networks Inc. More information about the
reorganization cases of TerreStar Networks and the amount of the receivables and collecting the
receivables as well as other uncertainties regarding the outlook is presented under "Risks and
Uncertainties" section.

RISKS AND UNCERTAINTIES

EB has identified a number of business, market and finance related risk factors and uncertainties
that can affect the level of sales and profits. 

Market risks

In the ongoing financial period, global economic uncertainty may affect the demand for EB's
services, solutions and products and provide pressure on e.g. pricing. In the short term such
uncertainty may affect, in particular, the utilization and chargeability levels and average hourly
prices of R&D services. 

As EB's customer base consists mainly of companies operating in the fields of automotive and
telecommunications and defense and public safety authorities, the company is exposed to market
changes in these industries. Some parts of EB's business are more sensitive than others to
dependency on an individual customer. Deviation in anticipated business development with such a
customer may translate as a significant deviation in the EB's outlook during the ongoing financial
period and thereafter. EB seeks to expand its customer base on a longer term and reduce dependence
on individual companies and hence the company will thereby be mainly affected by the general
business climate in automotive and telecommunication industries. The more specific market outlook
is presented under the "Business Segments' Development during April-June 2013 and Market Outlook"
section.

Business related risks

EB's operative business risks are mainly related to following items: uncertainties and short
visibility on customers' product program decisions, their make or buy decisions and on the other
hand, their decisions to continue, downsize or terminate current product programs, execution and
management of large customer projects, ramping up and down project resources, availability of
personnel in labor markets (in particular in Germany), accessibility on commercially acceptable
terms and on the other hand successful utilization of the most important technologies and
components, competitive situation and potential delays in the markets, timely closing of customer
and supplier contracts with reasonable commercial terms, delays in R&D projects, realization of
expected return on capitalized R&D investments, obsolescence of inventories and technology risks
in product development causing higher than planned R&D costs. Revenues expected to come from
either existing or new products and customers include normal timing risks. EB has certain
significant customer projects and deviation in their expected continuation could result also
significant deviations in the Company's outlook. In addition there are typical industry warranty
and liability risks involved in selling EB's services, solutions and products.  

EB's product delivery business model faces such risks as high dependency on actual product volumes
and development of the cost of materials. The above-mentioned risks may manifest themselves as
lower amounts of product delivered or higher costs of production, and ultimately, as lower profit.
More than earlier EB's customers in the automotive industry seek paying the software and product
platform development  either entirely or mainly  through license fees after the start of the
production, which may cause significant additional financing needs for the R&D phase and again
increase the dependency on  production volumes of cars.

Some of EB's businesses operate in industries that are heavily reliant on patent protection and
therefore face risks related to management of intellectual property rights, on the one hand
related to accessibility on commercially acceptable terms of certain technologies in the EB's
products and services, and on the other hand related to an ability to protect technologies that EB
develops or licenses from others from claims that third parties' intellectual property rights are
infringed. Additionally, parties outside of the industries operate actively in order to protect
and commercialize their patents and therefore in their part increase the risks related to the
management of intellectual property rights. At worst, claims that third parties' intellectual
property rights are infringed, could lead to substantial liabilities for damages. Also EB has
received a formal request from one of its customers for indemnification that is unspecified both
in terms of the basis of liability and the amount claimed. Based on information available it does
not seem likely that the claim would result in significant liability in the short term. It is
possible that, based on later information, the above views may need to be reconsidered.

Financing risks

Global economic uncertainty may lead to payment delays, increase the risk for credit losses and
weaken the availability and terms of financing. To fund its operations, EB relies mainly on income
from its operative business and may from time to time seek additional financing from selected
financial institutions. Currently EB has a committed overdraft credit facility agreement of EUR 10
million and committed revolving credit facility agreement of EUR 10 million, valid until June 30,
2014. These agreements include financial covenants related to group's equity ratio and earnings
before interest and taxes (EBITDA), to be reviewed semiannually. There is no assurance that
additional financing will not be needed in case of clearly weaker than expected development of
EB's businesses or in case customer commitments of Automotive Business Segment would represent
more than planned funding for R&D phase.

Customer dependency in some parts of EB's business may translate as accumulation of risk with
respect to outstanding receivables and ultimately with respect to credit losses. EB asserted
claims for its receivables in the amount of approximately USD 25.8 million (EUR 19.4 million as
per exchange rate of August 7, 2013) in the Chapter 11 cases of its customers TerreStar Networks
Inc. and its parent company TerreStar Corporation filed in 2010 and 2011. In addition to the
booked receivables, EB asserted claims for additional costs in the amount of approximately USD 2.1
million (EUR 1.6 million as per exchange rate of August 7, 2013) resulting mainly from the ramp
down of the business operations between the parties. Thus, EB asserted claims against each of the
TerreStar entities in amounts totaling USD 27.9 million (EUR 21.0 million as per exchange rate of
August 7, 2013).  Due to uncertainties related to the accounts receivable, EB booked an impairment
of the accounts receivable in the amount of EUR 8.3 million during the second half of 2010.

EB presently estimates that its total distribution under the Terre Star Networks confirmed plan of
liquidation may be in the range of 8-10% of the face amount of its claim. However, this estimate
is subject to various assumptions, and the amount and timing of EB's distribution on the remaining
portion of its claim cannot be predicted with certainty at this time. Pursuant to the plan, on
March 29, 2012 EB received a USD 650,890 distribution on that portion of its claim entitled to
payment priority under U.S. bankruptcy law.

As part of the Chapter 11 process, the liquidating trustee (the "Trustee") of The TerreStar
Networks Inc. Liquidating Trust (the trust having been formed in connection with confirmation of
the Chapter 11 plan of TerreStar Networks) is considering whether the Trustee may recover payments
previously made to creditors pursuant to various provisions of the Bankruptcy Code.  During the 90
days prior to TerreStar Networks' bankruptcy filing, EB received approximately USD 2.5 million
that the Trustee has alleged to be preferential payments, and it remains possible that the Trustee
may sue EB to recover these payments.  EB believes that it has strong defenses to any such
litigation and therefore would vigorously contest it, but anticipates that this issue must be
adjudicated or settled before EB receives further distributions on its claim. Further, in
reconciling accounts in preparation for making distributions under the TerreStar Networks plan,
the Trustee requested, and EB provided, additional information and documents in support of EB's
claim.  EB has entered into a tolling agreement with the Trustee which, as amended, extends the
avoidance action statute of limitations through and including August 21, 2013, which date could be
further extended by mutual consent, with a view to determining whether the parties can settle any
outstanding disputes between them. The likelihood and outcome of any such disputes cannot be
predicted with certainty at this time.

By order of the bankruptcy court dated August 24, 2012, Elektrobit Inc., a subsidiary of EB, and
TerreStar Corporation and certain of its preferred shareholders, entered into a full and final
settlement of various disputes that had arisen between them in the TerreStar Corporation
reorganization cases.  Pursuant to this settlement, on August 28, 2012 TerreStar Corporation made
a cash payment to Elektrobit Inc. of USD 13.5 million in full and final satisfaction of EB's claim
against that entity. The settlement did not include the TerreStar Networks Chapter 11 cases and
did not include any distribution from those cases that may be available to EB.  On October 24,
2012, the bankruptcy court entered an order approving a plan of reorganization for TerreStar
Corporation and various affiliates (not including TerreStar Networks) which preserved EB's rights
with respect to EB's claim against TerreStar Networks.

Based on EB's current understanding, there is no reason to believe that EB would not be able to
collect from the bankruptcy estate of TerreStar Networks the full amount of the pro rata
distribution on its general unsecured claim in due course. It is possible that based on later
information related to the TerreStar Networks Chapter 11 cases, the above views may need to be
reconsidered. Should the amount of the pro rata distribution on EB's general unsecured claim not
be collected from the bankruptcy estate of TerreStar Networks, and should the Trustee commence
litigation resulting an order for EB to repay certain allegedly preferential transfers, costs
related to the process would additionally lower EB's operating result on a non-recurring basis by
approximately EUR 2 million at maximum. 

The U.S. Internal Revenue Service ("IRS") disallowed a deduction taken on EB's subsidiary's,
Elektrobit Inc.'s 2010 U.S. federal income tax return for the impairment of the receivables from
the TerreStar companies. EB appealed this disallowance to the IRS Office of Appeals, which is
expected to render a decision before the end of 2013. An unfavorable decision can be appealed to
the United States Tax Court, in which case the appeal will take two years.  

If the appeal were to proceed to the United States Tax Court and if the resolution of the
litigation results in a complete rejection of the amount deducted in 2010, EB would be required to
pay back the tax refund in full with accrued interest. At worst, as a result of the pay back of
the tax refund and the respective interest expenses and litigation expenses, there would be a
negative effect on EB's cash flow of approximately of USD 2.7 million (EUR 2.0 million as per
exchange rate of August 7, 2013). Depending on the progression of the appellate process, such
effects would be booked probably in 2016. Based on EB's current understanding, there is no reason
to believe that the IRS' disallowance will be sustained.  Based on subsequent information, the
situation may need to be reconsidered. It 

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